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An accomplished husband and father

It is commendable to see a successful man who doesn’t only excel at work but also at home. As many remember former Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. as a committed public servant, people closest to him will remember him as a devoted husband and father.

The “homegrown” central banker who worked for BSP for 36 years is survived by his wife Maria Teresita Festin Espenilla, daughter Jacqueline Joyce, son-in-law Ben Baltazar, sons Nikko Nestor and Leonardo Nestor, and grandchild Zev Eron.

Mrs. Espenilla, or Tess, works for the United States Agency for International Development (USAID) as a microfinance specialist. Mr. Espenilla was seen as a devoted husband when he reportedly “requested banking reporters who usually call on him every Friday to interview him [early] for their Monday stories,” as he seemingly sought to reserve quality time for his wife.

Known to many as “Nesting,” the former governor was also highly appreciated by his children, whom speaker and behavioral economist Rose Fres Fausto quoted in her recent tribute to Mr. Espenilla published on her Web site FQMom.com.

The intelligent genes of the couple must have been inherited by their children, who took courses in law, architecture and engineering.

Jacqueline, or Jackie, the eldest and only daughter, is a Harvard law graduate. One of her fond memories with her father is him going to the market on weekends to buy ingredients for a meal he will cook for them. All three children agree that their dad is the better cook.

Jackie also remembers her father as a mentor to many people. “Mentor in the sense that if they had an idea or a thought, or potential that he saw in them, he went out of his way to make sure that they reached that full potential, whether it be connecting them to the correct people, or finding opportunities for them for training or something like that,” she explained in another news report. “And it comes back to him in many forms. These individuals become committed or dedicated also to the platforms he wanted to advance….”

Recalling his father’s cooking, Nikko, the eldest son, said, “He was very meticulous with the choice of meat that he would buy then he would slow cook his specialty bulalo.”

Mr. Espenilla’s youngest, Nesty, remembers his father during their bonding time through bowling. “It started when I was still a little boy and I had to hold the ball with two hands,” Nesty shared. “That activity with him went on into my adult life.”

The former governor, who fought tongue cancer, was still able to be a grandfather to the son of Jackie and Ben, Zev, whom he described as a healthy baby.

He also loved dogs, regularly walking around the family’s five pooches.

While Mr. Espenilla will be remembered as an exemplary chief of the BSP, he will indeed be cherished as a loving head of his family.

Remembering BSP Governor Nestor A. Espenilla, Jr.

Testimonials

BMAP joins the rest of the banking industry in honoring the memory of an upstanding leader, Governor Nestor Espenilla, Jr. He was Gov. Nesting to most of us, a champion of inclusivity, of making banking services more accessible to every Filipino.

He collaborated closely with industry associations like BMAP to push for his advocacies such as financial inclusion and electronic payments. He made an impact in the lives especially of the unbanked and underserved.

Bank Marketing Association of the Philippines

The Monetary Board Resolution of Condolence read by Monetary Board Member and Department of Finance (DoF) Secretary Carlos G. Dominguez during the necrological services held at the BSP last Feb. 28:

Resolution of condolence. The Monetary Board of the Bangko Sentral ng Pilipinas. Noting that Governor Nestor A. Espenilla, Jr. passed away on the 23rd of February 2019.

Recalling that he served the BSP with unwavering dedication and excellence for 38 years since joining the Bangko Sentral in 1981.

Mindful that he implemented ground-breaking policies on banking supervision, capital market development, credit policy, financial inclusion and consumer protection; institutionalized risk-based and proportionate regulations, which enabled BSP-supervised institutions to innovate business models and adopt digital financial services; and championed an efficient, interoperable, and consumer-friendly digital payment system.

Acknowledging that he pioneered major reforms under the Continuity Plus Plus theme, driven by progressive and market-friendly policies, to ensure low and stable inflation; safe and sound financial system; and a secure and efficient payment system.

Recognizing that he pursued bold, financial sector reforms for a more efficient, flexible and inclusive financial system.

Stressing that he promoted financial education and consumer protection, and sustained the development and implementation of trailblazing policies that provided an enabling regulatory and operational environment, including National Retail Payment System, the digitalization of payment systems as a means of democratizing financial services.

Achievements which earned him global recognition. Emphasizing that he concurrently served as Chairman of the Anti-Money Laundering Council and Philippine International Convention Center, the Financial Sector Forum, and the Financial Stability Coordination Council; and assumed leadership responsibilities, such as being the Chairman of the Basel Consultative Group Work Stream on Financial Inclusion, Governor of the International Monetary Fund, and alternate Governor for the World Bank and Asian Development Bank. Underscoring that he espoused employees-centered Human Resource policies that will benefit BSP employees well beyond his term of office.

And desiring to share with the bereaved family of the late Governor Nestor A. Espenilla, Jr. the grief brought by his death, we have agreed to express its sincere condolences to the family of the late Governor Nestor A. Espenilla, Jr.. Done at the Bangko Sentral ng Pilipinas Assembly Hall, City of Manila, this 28th day of February 2019.

Signed by the Honourable Juan D. de Zuñiga, Jr., Acting Chairman of the Monetary Board; Honourable Felipe M. Medalla, member of the Monetary Board; Honourable Peter B. Favila, member of the Monetary Board; Honourable Antonio S. Abacan, member of the Monetary Board; Honourable Bruce J. Tolentino, member of the Monetary Board; Honourable Maria Almasara Cyd N. Tuaño-Amador, Officer-in-Charge of the BSP; and myself, Carlos G. Dominguez, member of the Monetary Board.

Bangko Sentral ng Pilipinas

The Chamber of Thrift Banks deeply mourns the passing of Governor Nestor Espenilla, Jr. We honor him for his dedicated public service, his continued push for banking reforms, his strong support for the important role of thrift banks, and his advocacy for greater financial inclusion through digitalization.

He was a skillful regulator, sincere, always willing to listen and engage with us on vital issues that would greatly impact the industry, changing the status quo if necessary. To him, BSP regulations should not be a hindrance to a progressive and dynamic thrift banking industry as it fulfills its mandate of providing credit to micro, small and medium-scale enterprises, consumers and housing, and thereby contribute to the growth of the Philippine economy.

The consumer was always his foremost concern, thus he collaborated with CTB and other sectors of the industry on having a simplified and standardized bank-borrower loan mortgage agreement adopted by all banks. Now known as the Unified Loan & Mortgage Agreement (ULAMA), this document upholds consumer protection by affording consumers ease in comparison of terms and conditions across the different players in the industry.

His enabling regulations on financial inclusion, such as allowing banks to set up branch-lite offices anywhere in the country, effectively extended full banking services to unbanked and underserved areas. CTB member banks responded immediately to this initiative by setting up their own branch lites and addressing the issues that hinder the unbanked from entering the formal banking sector.

In response to Gov. Espenilla’s unceasing and passionate call for banks to get seriously involved in BSP’s National Retail Payments System, another tool for promoting financial inclusion, CTB membership in the Philippine Payments System continues to grow, providing electronic fund transfer facilities thru PESONet and InstaPay.

He was instrumental for setting CTB’s collaboration with FinTech companies such as FintQ as a means to accelerate digitalization in the industry. Governor Nesting was indeed a “champion of the unbanked and underserved.” CTB continues to acknowledge his legacy through the collective efforts of its 47 member thrift banks who have embraced his enabling regulations on financial inclusion and digitalization.

Gov. Espenilla will be greatly missed. His achievements will remain as a marker of his outstanding contribution to the national economy and the banking industry.

Chamber of Thrift Banks

As finance practitioners and financial officers of our respective member firms, we believe that BSP Governor Nestor Espenilla (or Nesting, as we fondly call him) brought a sense of stability to the banking sector that was very reassuring to our respective boards, management, and investors.

When President Duterte was looking for a replacement for former BSP Governor Say Tetangco, a highly respected and awarded central bank governor, he found him in Nesting Espenilla. The President chose a man with 38 years of central banking experience who was also very highly regarded and greatly respected in the business community. When Say Tetangco stepped down, we thought it would be very difficult to find a person with equal competence and gravitas to replace him. Nesting Espenilla was that person.

Nesting was an inspirational leader who was a staunch advocate of the digital payment system, which is the beginning of the revolution the banking sector must go through as the digital world takes over. Nesting championed strong risk management and strict adherence to regulatory and financial inclusion in a more responsive banking system through good governance, proper risk management, greater financial disclosure and increased capitalization, resulting in a banking system that is the best capitalized and with the best balance sheet in the region. He was open to new ideas and doing new things. He welcomed change.

Nesting was a true professional who stood firm on his principles, even when under fire from political and special interests to accommodate them. He maintained the independence a central banker must have. Some people demand respect, Nesting earned it by proving himself in the professional, honest job he did.

Those who were close to Nesting know that he was a very humble man, in spite of being a very intelligent, knowledgeable and skilled central banker. Moreover, he had a very strong sense of humor.

He should not have left us so early in his life, but he had. The banking community is the lesser because of it.

Our hearts go out to Tess and their children, Jacqueline, Nikko, and Leonardo, son-in-law Ben, and grandchild Zev Eron. They have lost a devoted husband, loving father, great man and dear friend.

Financial Executives Institute of the Philippines

We pay tribute to an exemplary and transformational leader and a known “regulator-disruptor” who made economic inclusion his mantra. He had the passion and dedication to bring about meaningful change to the unbanked and underserved Filipinos through enabling regulations and policies.

Letting innovations thrive was one of his legacies, allowing FinTechs and similar players to provide alternative and affordable access to financial services. He made digital as a tool to harness efficiencies, collaboration and interoperability in the industry.

You will be missed.

RIP BSP Governor Nesting Espenilla, Jr.

Salamat po.

Lito Villanueva

Chairman, FinTechAlliance.ph

Managing Director, FINTQnologies Corp.

It is with profound sadness that I learned the passing of Bangko Sentral ng Pilipinas (BSP) Governor and Anti-Money Laundering Council (AMLC) Chairman Nestor “Nesting” A. Espenilla, Jr. AMLC is composed of only three members: the governor of the BSP, the chairman of the Securities and Exchange Commission (SEC), and the insurance commissioner. Under the AMLC law, the three members must act unanimously on all decision-making. An objection by one member aborts a proposed action. The AMLC meets every three weeks at the BSP Governor’s office.

Governor Nesting had been resolute in improving the operations of the AMLC and in pushing for the improvement of its regulations. He had always been methodical and clear during our council deliberations. During his watch as chairman of the AMLC, Gov. Nesting pushed for the increase in AMLC manpower and improvement of the manpower capacity of the AMLC Secretariat.

Under his leadership, the AMLC continued to pursue major reforms in strengthening the country’s defenses against illegal money to ensure the stability of the entire Philippine financial system. 

On behalf of the Insurance Commission, I want to express my condolences to Nesting’s family and to acknowledge with gratitude his contribution to our country.

We remember Governor Nesting who had been a supportive partner of the commission in our advocacy for financial inclusion, consumer protection and financial stability.

We also join Governor Nesting’s family, friends and colleagues in celebrating the life of Governor Nesting — humble and soft-spoken, but bold and brave.

Governor Nesting would have been a brilliant lawyer had he continued with his law degree. But we are very lucky to have a hardworking career central banker who dedicated his life to the banking industry. 

Nesting began his career at the BSP in 1981 and steadily rose through the ranks until he was eventually appointed as governor of the BSP in May 2017 by President Rodrigo Roa Duterte. He concurrently served as chairman of the AMLC and the Financial Stability Coordination Council.

Today, let us remember his commitment to public service as we pray for his family during this difficult time.

Dennis B. Funa

Insurance Commissioner and AMLC Member

It is a sad day for the country and the financial services industry with the passing of Gov. Nestor A. Espenilla, Jr. — humble public servant, progressive central banker, and relentless champion of financial inclusion. His legacy lives on in every effort that we all do to serve the unbanked, uncarded and underserved Filipinos with digital financial services.

Paalam and rest in peace, Gov.

Our prayers and condolences to his family and to everyone at the BSP.

Orlando Vea

President and CEO, Voyager/PayMaya Philippines/FINTQnologies

Chairman, Philippine eMoney Association (PEMA)

Inflation back on track at one-year low

By Christine Joyce S. Castañeda
Senior Researcher
INFLATION eased for the fourth straight month and on to target in February to post the lowest reading in 12 months, helped by milder increases in the prices of food and beverages, the Philippine Statistics Authority (PSA) reported on Tuesday.
Preliminary PSA data showed inflation last month at 3.8%, slower than January’s 4.4% and matching February 2018’s pace.
Headline inflation rates in the Philippines (Ferbruary, 2019)
The February reading was lower than the 4.1% estimate median in BusinessWorld’s poll of 13 economists late last week. The latest figure also fell within the 3.7-4.5% estimate which the Bangko Sentral ng Pilipinas’ (BSP) Department of Economic Research gave for the month.
The better-than-expected pace marked the fourth straight month of deceleration from the nine-year 6.7% peak recorded in September and October last year.
The preliminary result brought the year-to-date average to 4.1% — still above the BSP’s 2-4% target band and 3.1% forecast average for the year, which compares to 2018’s 5.2%.
Core inflation, which strips volatile prices of food and energy items, clocked 3.9% last month slower than January’s 4.4% albeit faster than the 3% in the same period last year.
The latest inflation figure, however, will not necessarily lead to monetary policy easing when the Bangko Sentral ng Pilipinas (BSP) Monetary Board conducts its second policy review on March 21, Deputy Governor Diwa C. Guinigundo told reporters in a mobile phone message after data were released. It maintained policy in its first 2019 review on Feb. 7.
The data showed lower increments in the heavily weighted food and non-alcoholic beverages at 4.7% last month from 5.6% in January and 4.8% in February 2018.
Food-alone inflation eased to 4.2% versus the previous month’s 5.1% and 4.8% a year ago.
With the exception of education and communication, the rest of the subindices posted slower upticks during the month as well.
Economists attributed the better-than-expected reading to the slower increase in the prices of food and non-alcoholic beverages.
“The basket-heavy food index, the bane of 2018 inflation, helped keep price gains in check in 2019…With [food and non-alcoholic beverages] inflation at 4.7% from 5.6% in January, the headline print slid as well, this time back within target after almost a year,” said Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila.
“Food prices are now tamer given improved weather and supply conditions while the waning effects after the tax on sugar drinks fade on non-alcoholic drinks.”
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. (UnionBank), likewise cited the prices of food items as the main drivers of inflation’s slowdown, in particular, the prices of rice and corn.
The rice and corn indices in February stood at 2.9% and -0.3%, respectively, compared to 4.7% and 0.9% in January.
With the exception of fish, whose inflation rate steadied at 7.8%, the rest of the food items recorded slower annual mark-ups.
“With inflation now back within target, we expect the BSP to factor this in as the inflation path forecasted by the BSP continues to pan out,” ING’s Mr. Mapa said.
“If this trend continues, this could give the central bank the leeway to ease back on policy by way of RRR [reserve requirement ratio] cuts as early as [the first quarter] and a possible policy rate cut by May.”
In a report, economist Noelan Arbis at HSBC Global Research, said: “We expect monetary accommodation to first come in the form of RRR cuts,” adding that he expects “a 100-[basis point] cut in banks’ RRR in the second quarter.”
On the other hand, economists Mustafa Arif and Sanjay Mathur of ANZ Research said in a report that they expect the BSP to keep rates unchanged in its next meeting.
REDUCTION OF INTEREST RATES PREMATURE?
Despite market expectations of loosening monetary policy, BSP’s Mr. Guinigundo said that the lower-than-expected inflation will not necessarily trigger interest rate cuts or reduce bank’s required reserves.
“We continue to consider our current monetary settings as appropriate given the emerging risks both here and abroad. However, the Monetary Board will be meeting this month precisely to review the stance of monetary policy given the expected new data that would be available from now until the next meeting against the backdrop of a softening global economy,” he told reporters.
“It may be premature to talk about a possible reduction in either the policy rate or the RRR [reserve requirement ratio] at this time considering that the year-to-date inflation remains above the target of 2-4%. More important, our latest forecasts for the next two years are anchored on the current policy rate of 4.75%,” he added.
“But these policy issues will remain on the table. Timing is the crucial issue.”
In a separate statement, the central bank said: “The latest inflation outturn is consistent with the BSP’s expectation of the continued easing of price pressures.”
“Inflation will likely settle within the target range in 2019 and 2020 as previous monetary and non-monetary policy actions work their way through the economy. The recent enactment of the rice tariffication act will further temper rice prices in the near term and help raise long-run productivity in the agricultural sector. The BSP continues to keep a close watch over price developments in the country and shall consider all relevant information at its next monetary policy meeting on [March 21, 2019] to ensure that the monetary policy stance remains consistent with the BSP’s primary mandate of safeguarding price stability.”
OUTLOOK
In a joint statement, the Department of Finance, National Economic and Development Authority and the Department of Budget and Management said that inflation is starting to become more manageable.
“With these developments, we are optimistic that the downward path of inflation will continue for the rest of the year. This will be backed by the recent enactment of the Rice Industry Modernization Act (Republic Act No. 11203), which is expected to bring down rice prices and cut inflation by 0.5-0.7 percentage point this year and 0.3-0.4 percentage point next year,” the statement read.
The rice tariffication law, which liberalizes the import process for the staple while taking away the role in importing of the National Food Authority, took effect yesterday.
“We must ensure that the change to a rice tariff regime — from government-led to market-led — is seamless and fast,” the statement further read.
The country’s economic managers flagged the expected onset of El Niño, which could last until June.
All in all, economists expect inflation to continue its deceleration in the coming months.
“Inflation will continue to trend lower and remain within target, barring any supply-side shock from El Niño and or oil price shock,” said ING’s Mr. Mapa.
“The rice tariffication law will help ensure that the food basket sees less volatile price movements as we can import to augment local supplies.”
Similarly, UnionBank’s Mr. Asuncion anticipates inflation to continue to decline, especially as food price increases slow further.
“With global oil prices expected to decline further in the longer-term due to supply issues and US shale production, local headline inflation is expected to thread the government’s target of 2-4%,” he said.
HSBC’s Mr. Arbis expected headline figure to be “closer to the target midpoint” in the second quarter and fall below the 3% mark in the third quarter, averaging 3.3% for the year. — with Melissa Luz T. Lopez

Headline inflation rates in the Philippines (Ferbruary, 2019)

INFLATION eased for the fourth straight month and on to target in February to post the lowest reading in 12 months, helped by milder increases in the prices of food and beverages, the Philippine Statistics Authority (PSA) reported on Tuesday. Read the full story.
Headline inflation rates in the Philippines (Ferbruary, 2019)

Financial industry awaits Diokno’s first signals

By Melissa Luz T. Lopez
Senior Reporter
THE COUNTRY’S financial sector awaits clear cues from newly appointed Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno, with expectations that his outsider view will make monetary policy more supportive of the state’s growth goals by way of lower interest rates.
Malacañang made the surprise announcement on Monday night, naming the two-time Budget secretary as head of the central bank and chairman of the policy-setting Monetary Board.
Mr. Diokno, 70, has been sitting as part of President Rodrigo R. Duterte’s economic team since assuming office mid-2016. He holds a doctorate degree in economics and has been professor emeritus at the University of the Philippines Diliman. His career was spent mostly in the academe and in government, having served as budget undersecretary under former Pres. Corazon C. Aquino and later on, as budget chief of former Pres. Joseph E. Estrada.
Observers generally took the news as a surprise, given that Mr. Diokno wasn’t among the names floated to replace the late Gov. Nestor A. Espenilla, Jr. who passed away on Feb. 23 after battling tongue cancer for over a year.
Mr. Diokno will serve Mr. Espenilla’s remaining term until July 2023. He is yet to take his oath as BSP governor as of press time, although Executive Secretary Salvador S. Medialdea said that the appointment took effect yesterday.
‘EVIDENCE-BASED’
Pressed for comments about his term at the BSP, Mr. Diokno said it was “too early to make any policy statement” for now.
“Policy statements will be evidence-based and it should be the outcome of deliberations by the seven-man Monetary Board,” Mr. Diokno said in a mobile phone message.
In a statement, the Bankers Association of the Philippines said it was “optimistic” about Mr. Diokno’s leadership given his “reformist” image.
Alfonso L. Salcedo, Jr., president and chief executive officer at Security Bank Corp., said Mr. Diokno’s appointment was “not expected,” but that the new BSP chief is “competent and smart.”
Prior to this, there were calls to appoint a career central bank official to succeed Mr. Espenilla to follow tradition at the BSP.
The last “outsider” who took the governor’s seat was Rafael Carlos B. Buenaventura in 1999, who was then the president of a private bank.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said markets seek assurance about policy continuity at the central bank.
“The last Governor Espenilla talked about ‘Continuity++,’ and the markets took it well. It would be good to be in line with this particular focus at the start,” Mr. Asuncion said.
“If the markets sense that it seems that ‘Continuity++’ will stay and in fact be upgraded further, I think, we will be fine moving forward.”
Several economists took Mr. Diokno’s appointment as a sign of more “pro-growth” measures from the central bank, given his vast experience on the fiscal front.
“Since being appointed, Gov. Diokno has already noted that the BSP’s monetary policies must be ‘in sync’ with fiscal policy, in addition to its considerations for inflation and financial stability. Given the Duterte administration’s expansionary fiscal policy stance, this signals a bias for more monetary accommodation from the new governor,” said Noelan Arbis, economist at HSBC Global Research.
BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas added that the Mr. Diokno’s solid grasp of the economy will allow him to “fine-tune” policies to push growth beyond six percent, adding that he is a “good communicator and advocate of transparency.”
“After all, he is the chief architect of Build, Build, Build… He has to play the balancing act,” Mr. Ravelas said when sought for comment.
Mr. Diokno led the shift to a cash-based budgeting scheme designed to speed up public spending and delivery of projects and services. State disbursements also beat the P3.37-trillion program for 2018, leading to a wider budget gap equivalent to 3.2% of gross domestic product.
At the BSP, Mr. Diokno will inherit benchmark interest rates at a decade-high 4.25-5.25%, as inflation cools from a nine-yea peak of 6.7% in September and October 2018.
He also faces clamor from thew banking industry for further cuts in the reserve requirement ratio, a move that will unleash billions of pesos to the system and bring down the cost of money.
“With the price goal seemingly in hand, it may be time for the BSP to consider possibly reducing the reserve requirement ratio in the near term and eventually lower policy rates to help chase the 7-8% growth target,” said Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila. — with Karl Angelo N. Vidal

Jan. factory output down for 2nd straight month

By Mark T. Amoguis
Researcher
FACTORY output posted its second consecutive month of decline in January, the Philippine Statistics Authority (PSA) reported on Tuesday.
Preliminary results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed its volume of production index contracting by 4.1% year on year in January versus the December’s revised 11.9% decline and the 10.8% growth logged in January 2018.
The PSA reported that production of 12 out of the 20 major industry groups fell, namely: furniture and fixtures (-31.1%), basic metals (-12%), machinery except electrical (-8.3%), food manufacturing (-4.3%), chemical products (-4.1%), non-metallic mineral products (-8.6%), fabricated metal products (-9.3%), footwear and wearing apparel (-3.3%), printing (-8.3%), miscellaneous manufactures (-3.6%), tobacco products (-1%), as well as wood and wood products (-3%).
In comparison, the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) was 52.3 that month, slightly lower than December 2018’s 53.2, but higher than January 2018’s 51.7. A PMI reading above 50 signals improvement in business conditions from the preceding month, while a score below that point indicates deterioration.
Average capacity utilization — the extent by which industry resources are used in the production of goods — was estimated at 84.3%. Eleven of the 20 sectors registered capacity utilization rates of at least 80%.
“Manufacturing growth outturn in January 2019 showed a moderate improvement coming from December 2018. Nevertheless, with our recent progress in agricultural policy, we can expect manufacturing to recover further,” a press statement of the National Economic and Development Authority quoted its director-general, Socioeconomic Planning Secretary Ernesto M. Pernia, as saying.
Mr. Pernia noted the recent enactment of Republic Act No. 11203 — which is expected to cut retail prices of rice as it replaced quantitative restrictions with a tariff scheme when it took effect yesterday — may provide opportunities for factory expansion.
Meanwhile, Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort attributed manufacturing’s continued decline to higher base effects, spillover effects of higher inflation last year, as well as external factors such as the slower economic growth in developed economies and the ongoing US-China trade war that contributed to the decline in the country’s manufactured goods exports.
“With the easing trend of both inflation and interest rates, some manufacturers may find it more prudent to wait for borrowing costs to go down further… before borrowing more aggressively to fund new manufacturing facilities… Thus, this may have also led to the latest contraction in manufacturing,” Mr. Ricafort said.
For Federation of Philippine Industries (FPI) Chairman Jesus L. Arranza, the decline can be attributed to workforce shortage that led to a decline in the factory’s production output.
“There is a slowdown in production because it is so hard to get people…” Mr. Arranza said.
“This will be remedied, I’m sure. It cannot be a prolonged agony… This is just temporary,” he added.
“I’m confident that manufacturing will be more aggressive in the next few months. I don’t think it will have some problems.”
RCBC’s Mr. Ricafort shared this view, saying that the sector could pick up in the coming months on the back of easing inflation, lower interest rates, improving economic conditions abroad and “greater clarity” on the proposed rationalization of fiscal incentives that may have caused some foreign firms to put their expansion plans in the country on hold.
“Any further increase in the government’s spending — especially on major infrastructure projects — will lead to greater demand for allied/related manufacturing industries, especially those related to construction and construction-related inputs,” he added.
For NEDA’s Mr. Pernia, the government will have to pursue measures in order to attract investments and reduce the cost of expanding production capacity for existing firms. These include full implementation of the Ease of Doing Business-Efficient Government Service Delivery Act of 2018, the passage of the amendment to the Public Service Act that would foster competition in telecommunications, transportation and logistics, the proposed amendment to the Foreign Investments Act of 1991 that seeks to lower employment threshold to 15 direct employees from 50 for foreigners investing $100,000 in order to set up shop in the Philippines, and the amendments to the Retail Trade Liberalization Law that would ease equity and capitalization requirements.
“These measures are vital considering that manufacturing is expected to be dampened by less optimistic business and consumer outlook in the first quarter of the year. Higher domestic oil prices, rising adjustment in electricity rates and weather disturbances are expected to exert upward price pressures on the cost of inputs,” Mr. Pernia said.

Metro Pacific core profit jumps 7% to P15.1 billion

METRO Pacific Investments Corp.’s (MPIC) water business includes investments in Maynilad Water Services, Inc. and MetroPac Water Investments Corp.

By Arra B. Francia, Reporter
INFRASTRUCTURE conglomerate Metro Pacific Investments Corp. (MPIC) delivered a seven percent increase in core profit for 2018, thanks to its expanded power portfolio and steady volume from its toll roads and water units.
In a presentation on Tuesday, MPIC reported a core net income of P15.1 billion, higher than the P14.1 billion it posted in 2017.
“This growth was due to the increase in operating income, an increase of 10%, and this breaks down into contributions from each of our subsidiaries,” MPIC President and Chief Executive Officer Jose Ma. K. Lim said in a press briefing in Makati on Tuesday.
The power business accounted for the bulk of MPIC’s operating income at 55% or P10.8 billion, followed by toll roads which provided 23% or P4.4 billion. Water provided 19% or P3.8 billion, and the hospitals group generated 4% or P771 million.
On the other hand, the rail, logistics, and systems group incurred a net loss of P248 million.
Mr. Lim noted the power unit grew by 15% due to the increase in ownership in Beacon Electric Asset Holdings, Inc. to 45.5% from 41.2% in June 2017, giving them the benefit of full-year recognition for the larger stake.
Manila Electric Company (Meralco) booked a core profit of P22.4 billion, due to a 5% uptick in energy sales and slightly lower tariffs. The positive performance helped offset the 15% decline in Global Business Power Corp.’s core net income to P2.5 billion, dragged by depreciation costs for one of Panay Energy Development Corp.’s plants.
For the toll roads unit, core net income went up by 13% to P4.5 billion after Metro Pacific Tollways Corp. (MPTC) saw a system-wide vehicle entries record of 916,886 per day across its toll roads in the Philippines, Indonesia, Thailand, and Vietnam.
In the Philippines alone, average daily vehicle entries climbed by 7% to 478,315 across the North Luzon Expressway, Cavite Expressway, and Subic-Clark-Tarlac Expressway.
MPTC is currently waiting for the resolution of tariff adjustments, ranging from 20-48% on different parts of its network.
Meanwhile, MPIC’s water business, composed mostly of Maynilad Water Services, Inc., contributed P3.8 billion to the company’s core net income, thanks to higher volumes and a combination of basic and inflation-linked tariff increases during the period.
Maynilad saw a 5% rise in core net income to P7.7 billion. However, the company has yet to see the resolution of two related arbitration awards. This includes the case against Metropolitan Waterworks and Sewerage System on the treatment of corporate income tax as an expense recovered through tariffs, as well as its claim against the government to recover foregone revenues due to delays in increasing tariffs.
The hospital unit through Metro Pacific Hospital Holdings, Inc posted a 15% core net income increase to P2.4 billion, after out-patient visits rose by 8% to 3.32 million people.
Light Rail Manila Corp. provided P394 million to the conglomerate’s core profit, while logistics unit, Metropac Movers, Inc. made no contributions as it is currently focusing on ramping up its warehousing projects to increase its customer base.
MPIC did not give a profit guidance for 2019. But sought for an outlook this year, MPIC Chief Finance Officer David J. Nicol said he sees all units sustaining their volume growth in 2019 except for power.
“In terms of power, overall we had a good year last year. The start of this year is looking a bit quieter, although it’s early days. But we will be below the 5% full-year (volume) growth last year,” Mr. Nicol said during the press briefing.
“Toll roads, we see it sustaining (growth). The hospitals, rails, water are sustaining (growth). The only area that is soft is power.”
MPIC is one of three Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc. — a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc. — maintains interest in BusinessWorld through the Philippine Star Group, which it controls.
Shares in MPIC jumped 2.63% or 12 centavos to close at P4.69 each at the stock exchange on Tuesday.

PHL’s 4G availability improves — report

By Denise A. Valdez, Reporter
A RECENT report said the availability of fourth generation (4G) network in the Philippines is getting better, but while video experience, broadband speed and latency experience has also shown improvement, these still lag behind the rest of the world.
The latest Mobile Network Experience Report of wireless coverage mapping firm OpenSignal showed Smart Communications, Inc. and Globe Telecom, Inc. both successfully expanded in more locations in the country, increasing the chances of finding a long term evolution (LTE) connection to 70% of the time.
The report covered 270,433 devices from Nov. 1, 2018 to Jan. 29, 2019 with total measurements reaching 933.2 million.
Smart Communications, Inc. is now closing the gap with Globe Telecom, Inc. in terms of 4G availability in the country, scoring 70.8% next to Globe’s 71.7%. Comparing to the same period in 2017, Globe’s 4G availability score then was at 55.3%, and Smart was at 40%.
“The rapid rise in their scores in just two years shows that their LTE services are maturing as more consumers have access to 4G services more often,” OpenSignal said.
“We found that the increasing 4G availability we’re tracking in the country as a whole is amplified in urban areas. In Cebu, Davao and Manila all three operators had 4G availability scores at least 10 percentage points higher than their national averages,” it added.
In terms of video experience, Smart beat Globe with a score of 44.4 against 28.4 (out of 100), which puts it in the “fair” range (40-55) against Globe’s “poor” score (0-40).
“Video experience in the Philippines is definitely in need of improvement,” OpenSignal said, adding that even the country’s top provider Smart “needs to gain a lot of ground” to bump up its rating to “good” or “very good.”
Both providers also improved their average download speeds. Smart jumped to 9.0 megabits per second (Mbps) from 7.5 Mbps in OpenSignal’s August 2018 report. Globe also moved up to 5.5 Mbps from 5.0 Mbps previously.
“Mobile broadband speeds are improving in the Philippines, though average connections are still well below most of the developed world,” OpenSignal said.
It added that it is not the improvement of their network connections that has been driving the two companies’ network speed, but their expanded 4G availability.
“[T]he big boost in Download Speed Experience isn’t the result of more powerful network connections…. Rather, Globe and Smart’s improved 4G availability is causing overall download speeds to rise. While the speed of 4G connections may not have changed, our users on Filipino networks are finding those connections more often,” it said.
Latency experience, or the lag time to transmit a command, also put Smart on top of Globe with an average response time of 69.4 milliseconds versus 74.6 milliseconds.
In a statement, Smart said it continues to ramp up its rollout of LTE and LTE-advanced network with a budget of $5 billion from 2016 to 2020. PLDT, Inc.’s wireless unit added that it is increasing its fiber broadband service to support its mobile network expansion.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls.

MRC Allied starts work on mall’s solar rooftop

MRC ALLIED, Inc. has broken ground on a 1.1 megawatt (MW) solar photovoltaic rooftop project in one of the malls in Mindanao through its subsidiary Menlo Renewable Energy Corp. (MREN), the listed company said on Tuesday.
“Under the MoA (memorandum of agreement), MREN will be the project developer and owner of the solar facility while a private entity, owning and operating the mall, will be the power off-taker,” MREN said in a statement.
It did not identify the mall except to say that it is one of the “major” malls in southern Philippines.
The solar power project will have an estimated investment of P67.4 million through a 20-year cooperation among the parties from the issuance of the acceptance certificate, MRC said citing the MoA.
MRC previously said that its renewable energy subsidiary had signed a memorandum of agreement for the development, design, construction and installation of at least 1.1-MW solar photovoltaic (PV) rooftop system as part of the pilot project of its ambitious solar PV program.
The company, which was previously focused on property development, is expanding its solar energy footprint through the development of the solar PV rooftop project as part of its 200-MW target capacity for the next two years, MRC said.
In December last year, MRC said it expected to push through in early 2019 the issuance of new shares amounting to around P1 billion to fund its renewable energy development projects.
The fund raising was previously stalled because of issues with the Securities and Exchange Commission relating to the use of the proceeds.
In October, MRC announced that it was reorganizing by consolidating under the listed company all its assets and portfolio while its operating subsidiaries will be implementing the projects.
On Tuesday, shares in MRC were unchanged at P0.405 each. — Victor V. Saulon

DNL targets double-digit earnings growth this year

LISTED plastics and oleochemicals manufacturer D&L Industries, Inc. (DNL) looks to continue its double-digit profit growth this year, after increasing its earnings by 10% in 2018.
DNL disclosed on Tuesday that net income reached P3.19 billion in 2018, higher than the P2.91 billion it posted the year before. This came amid a four percent decline in revenues to P26.54 billion due to lower coconut oil prices.
“Coconut oil prices are still down. Selling prices have come down a lot because of the lower average selling price,” DNL President and Chief Executive Officer Alvin D. Lao said in a press briefing in Makati City yesterday.
DNL said average prices of coconut oil declined by 39% last year, while palm oil prices also shed 14%.
High margin specialty products accounted for 63% of the company’s revenues, while commodities, or refined vegetable oils and biodiesel, provided the remaining 37%.
Meanwhile, exports contributed 24% to revenues, but there was an eight percent decline in peso terms due to the lower commodity prices.
DNL’s net income was flat at P785 million in the fourth quarter, after a 19% decline in revenues to P6.37 billion due to accelerating inflation during the period.
Despite the lower revenues, blended gross profit margin hit a high of 22% for the fourth quarter, bringing its full-year margin to 19%. Mr. Lao attributed this to the company’s ability to pass on price changes to customers.
“We have elections this year, so that will be positive for our business…We should see better results this year 2019,” Mr. Lao said.
“Our target is double-digit growth in net income, so the minimum is 10%….We don’t see coconut oil prices remaining low for long. When prices recover, then revenues should go up as well,” he added.
The company is also banking on inflation easing as well as improving trade relations between the United States and China to lift its business this year.
DNL will push through with its P8-billion expansion at its facility in Tanauan, Batangas this year, which will triple its capacity in the next two to three years. This is seen to ramp up the company’s export business, since it will have to export half of total production as per rules for Philippine Economic Zone Authority zone locators.
It will further give the company space to increase its production in the following years, as its utilization rate is now at about 70% across five plants in Metro Manila and one in Laguna.
Shares in DNL rose 0.36% or four centavos to close at P11.30 each at the stock exchange on Tuesday. — Arra B. Francia

AirAsia launches venture capital fund to back start-ups in Southeast Asia

MALAYSIAN budget carrier AirAsia Group said on Monday it was launching a venture capital fund in the United States to invest in start-ups seeking to enter or expand in Southeast Asia.
The fund, called RedBeat Capital, will focus on post-seed-stage startups in travel and lifestyle, financial technology, artificial intelligence and cybersecurity.
AirAsia is partnering with San Francisco-based 500 Startups, which invests in young fast-growing companies.
RedBeat Capital will have a base in San Francisco and access to 500 Startups’ deal flow, AirAsia said.
The airline group has initially allocated about $10 million, and the fund has already invested in a couple of companies, Aireen Omar, deputy chief executive, told Reuters.
AirAsia, which pioneered budget air travel in Asia, is broadening its reach to include a payments company, logistics, food and beverages brands and a loyalty program.
A year ago, it placed these lifestyle assets including the BIG Loyalty scheme and a Wi-Fi service, in which it typically has stakes of 80-100%, under RedBeat Ventures.
The new fund RedBeat Capital will house smaller investments in start-ups of anything up to around 20%, Ms. Omar said.
Together, these could be listed separately in future.
“We don’t have a timeline (for a listing) yet because our focus is to build a business fast,” she said in an interview.
AirAsia has been trying to re-invent itself as a travel and technology firm to exploit data and offset cyclical volatility in airline earnings.
The group last week posted a fourth-quarter net loss, its first quarterly loss in over three years, citing higher fuel prices and lease costs.
Non-flying ancillary revenues currently make up about 20% of group revenue.
The digital drive can improve ancillary revenues by using machine learning to better understand consumer trends, Ms. Omar said, adding that investments via the new fund should also help the core business.
“I would imagine that with what we are building here, the ancillary part will be increasing to more than 20% and it is not impossible for it to reach 50% at some point in the future,” Ms. Omar said.
Southeast Asia, with a young population and more internet users than the United States, but relatively little exposure in Silicon Valley so far, is among the fastest-growing tech markets, according to 500 Startups.
“We have noticed our own partners turning an eye towards Southeast Asia. It seems like a greenfield,” the start-up accelerator’s Chief Executive Christine Tsai told Reuters.
Some network carriers such as Singapore Airlines are also ramping up investments in digital technology. — Reuters

PSBank books flat net earnings in 2018

PSBank
PHILIPPINE Savings Bank’s net income was steady in 2018.

PHILIPPINE SAVINGS Bank’s (PSBank) net income was steady in 2018 as its lending and deposit-taking businesses continued to expand.
In a regulatory filing on Tuesday, the savings arm of Metropolitan Bank & Trust Co. reported that it booked a net income of P2.7 billion last year, flat from the previous year’s level.
This translated to a return on equity of 11.4% and a return on assets of 1.2%.
The bank’s net interest income grew by 2.3% year-on-year to P11.3 billion in 2018.
Total loans reached P156.7 billion at 2018’s close, up 7.1% from P146.3 billion in the comparative year-ago period.
On the funding side, deposits expanded 6.2% to P200.7 billion last year from 2017’s P188.9 billion.
Overall, PSBank’s assets stood at P237.7 billion in 2018, up 6.4% from the P223.3 billion recorded the previous year.
The lender’s capital adequacy ratio stood at 13.9% while its common equity Tier 1 ratio was at 11.3%, well above the central bank’s minimum requirements.
“PSBank proactively responded to last year’s challenges brought about by higher interest rates and inflation by focusing on sales and improving on its operating efficiencies, without compromising its commitment in providing excellent customer service,” PSBank President Jose Vicente L. Alde was quoted as saying in the statement.
The Bangko Sentral ng Pilipinas fired off five consecutive rate hikes last year totalling 175 basis points (bp) to arrest surging inflation, which averaged 5.2% in 2018. This was marked with back-to-back 50-bp tightening moves just as prices were surging to multi-year highs.
Easing inflation — which stood at a better-than-expected headline print of 3.8% in February — is seen to spur consumer spending.
In September, the bank announced it will issue P10 billion worth of medium-term notes to “give PSBank an opportunity to access medium-term and stable funding as the bank further expand its consumer banking business.”
Prior to this, it raised P5.08 billion in August through the issuance of long-term negotiable certificates of time deposits, which carry a 5% coupon.
In January, it also raised P8 billion via a stock rights offer, selling 142.9 million common shares priced at P56 apiece. — K.A.N. Vidal

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